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Congress should scrap an outdated and unnecessary health care program that is costing the Defense Department billions in contracts, according to a new report from the government’s watchdog.

A decades-old program within the military health system known as the U.S. Family Health Plan (USFHP) has outlived its usefulness, the Government Accountability Office concluded, and duplicates many of the benefits and services provided under TRICARE -- the department’s main health care program that covers 9.6 million active-duty service members, reservists, retirees and their dependents.

“If the USFHP did not exist, DoD would potentially save millions of dollars from duplicative administrative costs and profits,” the report said.

TRICARE contracts cost the department about $56 billion over a five-year period, while USFHP contracts come with a $6.4 billion price-tag over five years. In addition to providing enrollees with the same benefits that TRICARE does and operating in the same geographic areas, USFHP’s costs aren’t totally transparent. Because of how Congress wrote the law when it required the department to use USFHP, Defense doesn’t know how much of the approximately $1.1 billion it pays annually to the program’s six designated providers goes to their administrative costs and profit versus the cost of health care services.

“It is not known how much it costs to deliver health care under the program, or the extent of administrative costs and profits that accrue to designated providers, because the designated providers have not been required to, nor have they chosen to, share cost or pricing data with DoD,” the GAO report stated. The 1997 National Defense Authorization Act required Defense to have sole-source contracts with designated USFHP providers and treat those contracts as “commercial item contracts,” meaning Defense can’t force the contractors to provide certified cost or pricing data during negotiations. The Defense Health Agency, which runs both programs, uses managed care support contractors to administer TRICARE’s benefits in three regions across the country; those contracts, unlike the USFHP contracts, are awarded on a competitive basis.

USFHP, which has remained unchanged since the 1990s, has about 134,000 enrollees. Non-active-duty service members and retirees under the age of 65 are eligible for USFHP, which offers beneficiaries TRICARE Prime, the managed care option. USFHP providers also are located in the same regions as TRICARE managed care support contractors; for instance, four of the six USFHP providers have more than 80 percent of their service area zip codes in the regions where TRICARE contractors offer TRICARE Prime. And the reimbursement structure for providers is different for USFHP and TRICARE managed care support contractors, which can give USFHP a competitive edge. USFHP has more flexibility than do TRICARE managed care support contractors to offer their providers higher reimbursement rates or other incentives, which can make it more attractive to providers. “In contrast, [managed care support contractors’] network providers must accept TRICARE maximum allowable charges as payment in full, and these rates are generally based on Medicare rates,” the report said.

Defense agreed with GAO’s factual assessment of the USFHP but deferred to Congress on the matter of eliminating it, since scrapping the program would require changing the law. The department also reiterated GAO’s recommendation that if the program were eliminated, it would be important to ensure the smooth transition of USFHP enrollees to other health care programs.

There’s been much debate over reforming the Defense Department’s health care system as well its pay and retirement systems. Congress, however, typically has shied away from making major changes to the military’s health care system over the past decade because of politics, and the large number of voters potentially affected by reforms. The nonpartisan Congressional Budget Office estimated in 2011 that the department’s health care costs are projected to hit almost $92 billion by 2030.

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